The Economic Meltdown…… America: caught in a spider’s web, Part 1

So for years the American economy appeared to be cruising along; money was being made in the stock market, 401k’s were filling up and then almost without warning the bottom dropped out. What happened? Were all the warning signs being ignored? Was it simply greed and unethical behavior? Or was it an unrealistic “redistribute the wealth” agenda of “progressive” politicians? Yes, yes, and yes!

It is this simple and this complicated. Bankers must behave ethically. Politicians must act responsibly. Citizens must behave sensibly and everyone must behave morally.

This meltdown represents more than just a breakdown of our financial system; it also reflects a meltdown of our national value system. Ours’ is a nation that was built with a system that rewarded hard work, contributions to society, leadership and self discipline. Our bedrock values included God, family, honesty, education, personal responsibility and patriotism. These values have been replaced with greed; instant gratification, breakdown of the family unit, erosion of religion’s place in society, a victim culture, and lack of respect for the law.

“We have no government armed in power capable of contending with human passions unbridled by morality and religion. Our Constitution was made only for a religious and moral people. It is wholly inadequate for the government of any other”. – John Adams

A loss of civility is now reflected in the behavior of both parties during campaigns. No longer are campaigns about a difference in opinions on how to govern or debates about the merits of policy positions. Instead, they have become an exercise in mudslinging, destruction of the candidates, lies, propaganda, intimidation and bullying to turn political agenda into public policy.

“I offer my opponents a bargain: if they will stop telling lies about us, I will stop telling the truth about them”. ~Adlai Stevenson

In many ways, the financial crisis is the result of ruthless politicians, in league with unscrupulous citizens, exploiting anyone they can with entitlement programs, legislation and loopholes. The public has come to confuse these entitlement programs with “rights” and to provide these “rights”, our politicians are willing to spend future generations into bankruptcy. It is completely fair to refer to the stimulus bill as “The Generational Theft Act of 2009”.

“It is incumbent on every generation to pay its own debts as it goes. A principle which if acted on would save one-half the wars of the world.” – Thomas Jefferson

So let’s begin to unravel the web in which we find ourselves. There are so many parts and pieces to this story. This is the first (and longest) installment. In this report we will establish the timeline of events surrounding the meltdown in detail. My goal is to shed light on the agenda at work and expose the trap we are being forced into. What’s at stake? Our liberty, our freedom and our national sovereignty!

As you read through this list of events, you should take note of the level of intervention that the government undertook during this crisis. Their action is unprecedented. The amount of spending and “investing” of tax dollars in businesses and banks can only be viewed as the first step toward nationalization of the U.S. business and our economy. Keep in mind that this is not the full list but a sampling of the events. Another interesting note is the source of this information. The bulk of this list came from the website of the St. Louis Federal Reserve Bank. Each item on the list is a link to an actual government press release. A link to the full list is provided to the site later in the article.

Summary of Events:

1999 The Clinton Administration pressures Fannie Mae into lending to lower income borrowers

August 10, 2007 | Federal Reserve Press Release The Federal Reserve Board announces that it “will provide reserves as necessary…to promote trading in the federal funds market at rates close to the FOMC’s target rate of 5.25 percent. In current circumstances, depository institutions may experience unusual funding needs because of dislocations in money and credit markets. As always, the discount window is available as a source of funding.”

August 16, 2007 | SEC Filing Fitch Ratings downgrades Countrywide Financial Corporation to BBB+, its third lowest investment-grade rating, and Countrywide borrows the entire $11.5 billion available in its credit lines with other banks.

December 12, 2007 | Federal Reserve Press Release | Additional Information The Federal Reserve Board announces the creation of a Term Auction Facility (TAF) in which fixed amounts of term funds will be auctioned to depository institutions against a wide variety of collateral. The FOMC authorizes temporary reciprocal currency arrangements (swap lines) with the European Central Bank (ECB) and the Swiss National Bank (SNB). The Fed states that it will provide up to $20 billion and $4 billion to the ECB and SNB, respectively, for up to 6 months.

December 21, 2007 | Bank of America Press Release Citigroup, JPMorgan Chase, and Bank of America abandon plans for the Master Liquidity Enhancement Conduit, announcing that the fund “is not needed at this time.”

2008

January 11, 2008 | Bank of America Press Release Bank of America announces that it will purchase Countrywide Financial in an all-stock transaction worth approximately $4 billion.

March 11, 2008 | Federal Reserve Press Release | Additional Information The Federal Reserve Board announces the creation of the Term Securities Lending Facility (TSLF), which will lend up to $200 billion of Treasury securities for 28-day terms against federal agency debt, federal agency residential mortgage-backed securities (MBS), non-agency AAA/Aaa private label residential MBS, and other securities. The FOMC increases its swap lines with the ECB by $10 billion and the Swiss National Bank by $2 billion and also extends these lines through September 30, 2008.

March 14, 2008 | Federal Reserve Press Release The Federal Reserve Board approves the financing arrangement announced by JPMorgan Chase and Bear Stearns [see note for March 24]. The Federal Reserve Board also announces they are “monitoring market developments closely and will continue to provide liquidity as necessary to promote the orderly function of the financial system.”

March 24, 2008 | Federal Reserve Bank of New York Press Release The Federal Reserve Bank of New York announces that it will provide term financing to facilitate JPMorgan Chase & Co.’s acquisition of The Bear Stearns Companies Inc. A limited liability company (Maiden Lane) is formed to control $30 billion of Bear Stearns assets that are pledged as security for $29 billion in term financing from the New York Fed at its primary credit rate. JPMorgan Chase will assume the first $1 billion of any losses on the portfolio.

July 13, 2008 | Federal Reserve Press Release The Federal Reserve Board authorizes the Federal Reserve Bank of New York to lend to the Federal National Mortgage Association (Fannie Mae) and the Federal Home Loan Mortgage Corporation (Freddie Mac), should such lending prove necessary.

July 13, 2008 | Treasury Department Press Release The U.S. Treasury Department announces a temporary increase in the credit lines of Fannie Mae and Freddie Mac and a temporary authorization for the Treasury to purchase equity in either GSE if needed.

July 30, 2008 | Public Law 110-289 President Bush signs into law the Housing and Economic Recovery Act of 2008 (Public Law 110-289), which, among other provisions, authorizes the Treasury to purchase GSE obligations and reforms the regulatory supervision of the GSEs under a new Federal Housing Finance Agency.

September 7, 2008 | Treasury Department Press Release The Federal Housing Finance Agency (FHFA) places Fannie Mae and Freddie Mac in government conservatorship. The U.S. Treasury Department announces three additional measures to complement the FHFA’s decision: 1) Preferred stock purchase agreements between the Treasury/FHFA and Fannie Mae and Freddie Mac to ensure the GSEs positive net worth; 2) a new secured lending facility which will be available to Fannie Mae, Freddie Mac, and the Federal Home Loan Banks; and 3) a temporary program to purchase GSE MBS.

September 16, 2008 | Federal Reserve Press Release The Federal Reserve Board authorizes the Federal Reserve Bank of New York to lend up to $85 billion to the American International Group (AIG) under Section 13(3) of the Federal Reserve Act.

September 17, 2008 | Treasury Department Press Release The U.S. Treasury Department announces a Supplementary Financing Program consisting of a series of Treasury bill issues that will provide cash for use in Federal Reserve initiatives.

September 17, 2008 | SEC Press Release The SEC announces a temporary emergency ban on short selling in the stocks of all companies in the financial sector.

September 19, 2008 | Treasury Department Press Release The U.S. Treasury Department announces a temporary guaranty program that will make available up to $50 billion from the Exchange Stabilization Fund to guarantee investments in participating money market mutual funds.

The FDIC agrees to enter into a loss-sharing arrangement with Citigroup on a $312 billion pool of loans, with Citigroup absorbing the first $42 billion of losses and the FDIC absorbing losses beyond that. In return, Citigroup would grant the FDIC $12 billion in preferred stock and warrants.

October 3, 2008 | Federal Reserve Press Release Wells Fargo announces a competing proposal to purchase Wachovia Corporation that does not require assistance from the FDIC.

October 3, 2008 | H.R. 1424 | Public Law 110-343 Congress passes and President Bush signs into law the Emergency Economic Stabilization Act of 2008 (Public Law 110-343), which establishes the $700 billion Troubled Asset Relief Program (TARP).

October 8, 2008 | Federal Reserve Press Release The Federal Reserve Board authorizes the Federal Reserve Bank of New York to borrow up to $37.8 billion in investment-grade, fixed-income securities from American International Group (AIG) in return for cash collateral.

October 14, 2008 | Treasury Department TARP Press Release | Additional Information U.S. Treasury Department announces the Troubled Asset Relief Program (TARP) that will purchase capital in financial institutions under the authority of the Emergency Economic Stabilization Act of 2008. The U.S. Treasury will make available $250 billion of capital to U.S. financial institutions. This facility will allow banking organizations to apply for a preferred stock investment by the U.S. Treasury. Nine large financial organizations announce their intention to subscribe to the facility in an aggregate amount of $125 billion.

October 24, 2008 | PNC Press Release PNC Financial Services Group Inc. purchases National City Corporation, creating the fifth largest U.S. bank.

November 10, 2008 | Federal Reserve Press Release The Federal Reserve Board approves the applications of American Express and American Express Travel Related Services to become bank holding companies.

November 10, 2008 | Federal Reserve Press Release | Treasury Department Press Release The Federal Reserve Board and the U.S. Treasury Department announce a restructuring of the government’s financial support of AIG. The Treasury will purchase $40 billion of AIG preferred shares under the TARP program, a portion of which will be used to reduce the Federal Reserve’s loan to AIG from $85 billion to $60 billion. The terms of the loan are modified to reduce the interest rate to the three-month LIBOR plus 300 basis points and lengthen the term of the loan from two to five years. The Federal Reserve Board also authorizes the Federal Reserve Bank of New York to establish two new lending facilities for AIG: The Residential Mortgage- Backed Securities Facility will lend up to $22.5 billion to a newly formed limited liability company (LLC) to purchase residential MBS from AIG; the Collateralized Debt Obligations Facility will lend up to $30 billion to a newly formed LLC to purchase CDOs from AIG (Maiden Lane III LLC).

November 23, 2008 | Federal Reserve Press Release | Summary of Terms The U.S. Treasury Department, Federal Reserve Board, and FDIC jointly announce an agreement with Citigroup to provide a package of guarantees, liquidity access, and capital. Citigroup will issue preferred shares to the Treasury and FDIC in exchange for protection against losses on a $306 billion pool of commercial and residential securities held by Citigroup. The Federal Reserve will backstop residual risk in the asset pool through a non-recourse loan. In addition, the Treasury will invest an additional $20 billion in Citigroup from the TARP.

November 25, 2008 | Federal Reserve Press Release The Federal Reserve Board announces the creation of the Term Asset-Backed Securities Lending Facility (TALF), under which the Federal Reserve Bank of New York will lend up to $200 billion on a non-recourse basis to holders of AAA-rated asset-backed securities and recently originated consumer and small business loans. The U.S. Treasury will provide $20 billion of TARP money for credit protection.

November 25, 2008 | Federal Reserve Press Release The Federal Reserve Board announces a new program to purchase direct obligations of housing related government-sponsored enterprises (GSEs)—Fannie Mae, Freddie Mac and Federal Home Loan Banks—and MBS backed by the GSEs. Purchases of up to $100 billion in GSE direct obligations will be conducted as auctions among Federal Reserve primary dealers. Purchases of up to $500 billion in MBS will be conducted by asset managers.

December 11, 2008 | NBER Press Release The Business Cycle Dating Committee of the National Bureau of Economic Research announces that a peak in U.S. economic activity occurred in December 2007 and that the economy has since been in a recession.

December 24, 2008 | Federal Reserve Press Release The Federal Reserve Board approves the applications of GMAC LLC and IB Finance Holding Company, LLC (IBFHC) to become bank holding companies, on conversion of GMAC Bank, a $33 billion Utah industrial loan company, to a commercial bank. GMAC Bank is a direct subsidiary of IBFHC and an indirect subsidiary of GMAC LLC, a $211 billion company. The Board cites “unusual and exigent circumstances affecting the financial markets” for expeditious action on these applications. As part of the agreement, General Motors will reduce its ownership interest in GMAC to less than 10 percent.

December 29, 2008 | Treasury Department Press Release The U.S. Treasury Department announces that it will purchase $5 billion in equity from GMAC as part of its program to assist the domestic automotive industry. The Treasury also agrees to lend up to $1 billion to General Motors “so that GM can participate in a rights offering at GMAC in support of GMAC’s reorganization as a bank holding company.” This commitment is in addition to the support announced on December 19, 2008.

December 30, 2008 | Federal Reserve Press Release The Federal Reserve Board announces that it expects to begin to purchase mortgage-backed securities backed by Fannie Mae, Freddie Mac and Ginnie Mae under a previously announced program in early January 2009 (see November 25, 2008).

January 5, 2009 | Federal Reserve Bank of New York Press Release The Federal Reserve Bank of New York begins purchasing fixed-rate mortgage-backed securities guaranteed by Fannie Mae, Freddie Mac and Ginnie Mae under a program first announced on November 25, 2008.

January 12, 2009 | White House Press Release | More Information At the request of President-Elect Obama, President Bush submits a request to Congress for the remaining $350 billion in TARP funding for use by the incoming administration.

January 16, 2009 | Federal Reserve Press Release | Term Sheet The U.S. Treasury Department, Federal Reserve, and FDIC announce a package of guarantees, liquidity access, and capital for Bank of America. The U.S. Treasury and the FDIC will enter a loss-sharing arrangement with Bank of America on a $118 billion portfolio of loans, securities, and other assets in exchange for preferred shares. In addition, and if necessary, the Federal Reserve will provide a non-recourse loan to back-stop residual risk in the portfolio. Separately, the U.S. Treasury will invest $20 billion in Bank of America from the TARP in exchange for preferred stock.

January 16, 2009 | Treasury Department Press Release The U.S. Treasury Department, Federal Reserve and FDIC finalize terms of their guarantee agreement with Citigroup. (See announcement on November 23, 2008.)

January 16, 2009 | Treasury Department Press Release The U.S. Treasury Department announces that it will lend $1.5 billion from the TARP to a special purpose entity created by Chrysler Financial to finance the extension of new consumer auto loans.

February 10, 2009 | Treasury Department Press Release | Fact Sheet U.S. Treasury Secretary Timothy Geithner announces a Financial Stability Plan involving Treasury purchases of convertible preferred stock in eligible banks, the creation of a Public-Private Investment Fund to acquire troubled loans and other assets from financial institutions, expansion of the Federal Reserve’s Term Asset-Backed Securities Loan Facility (TALF), and new initiatives to stem residential mortgage foreclosures and to support small business lending.

February 10, 2009 | Federal Reserve Press Release The Federal Reserve Board announces that is prepared to expand the Term Asset-Backed Securities Loan Facility (TALF) to as much as $1 trillion and broaden the eligible collateral to include AAA-rated commercial mortgage-backed securities, private-label residential mortgage-backed securities, and other asset-backed securities. An expansion of the TALF would be supported by $100 billion from the Troubled Asset Relief Program (TARP). The Federal Reserve Board will announce the date that the TALF will commence operations later this month.

February 17, 2009 | American Recovery and Reinvestment Act of 2009 President Obama signs into law the “American Recovery and Reinvestment Act of 2009”, which includes a variety of spending measures and tax cuts intended to promote economic recovery.

February 18, 2009 | Executive Summary President Obama announces The Homeowner Affordability and Stability Plan. The plan includes a program to permit the refinancing of conforming home mortgages owned or guaranteed by Fannie Mae or Freddie Mac that currently exceed 80 percent of the value of the underlying home. The plan also creates a $75 billion Homeowner Stability Initiative to modify the terms of eligible home loans to reduce monthly loan payments. In addition, the U.S. Treasury Department will increase its preferred stock purchase agreements with Fannie Mae and Freddie Mac to $200 billion, and increase the limits on the size of Fannie Mae and Freddie Mac’s portfolios to $900 billion.

February 26, 2009 | FDIC Quarterly Banking Profile The FDIC announces that the number of “problem banks” increased from 171 institutions with $116 billion of assets at the end of the third quarter of 2008, to 252 insured institutions with $159 billion in assets at the end of fourth quarter of 2008. The FDIC also announces that there were 25 bank failures and five assistance transactions in 2008, which was the largest annual number since 1993.

February 26, 2009 | Fannie Mae Press Release Fannie Mae reports a loss of $25.2 billion in the fourth quarter of 2008, and a full year 2008 loss of $58.7 billion. Fannie Mae also reports that on February 25, 2009, the Federal Housing Finance Agency submitted a request for $15.2 billion from the U.S. Treasury Department under the terms of the Senior Preferred Stock Purchase Agreement in order to eliminate Fannie Mae’s net worth deficit as of December 31, 2008.

February 27, 2009 | Treasury Department Press Release The U.S. Treasury Department announces its willingness to convert up to $25 billion of Citigroup preferred stock issued under the Capital Purchase Program into common equity. The conversion is contingent on the willingness of private investors to convert a similar amount of preferred shares into common equity. Remaining U.S. Treasury and FDIC preferred shares issued under the Targeted Investment Program and Asset Guarantee Program would be converted into a trust preferred security of greater structural seniority that would carry the same 8% cash dividend rate as the existing issue.

March 2, 2009 | AIG Press Release | Federal Reserve Press Release | Treasury Department Press Release The U.S. Treasury Department and Federal Reserve Board announce a restructuring of the government’s assistance to American International Group (AIG). Under the restructuring, AIG will receive as much as $30 billion of additional capital from the Troubled Asset Relief Program (TARP). In addition, the U.S. Treasury Department will exchange its existing $40 billion cumulative preferred shares in AIG for new preferred shares with revised terms that more closely resemble common equity. Finally, AIG’s revolving credit facility with the Federal Reserve Bank of New York will be reduced from $60 billion to no less than $25 billion and the terms will be modified. In exchange, the Federal Reserve will receive preferred interests in two special purpose vehicles created to hold the outstanding common stock of two subsidiaries of AIG: American Life Insurance Company and American International Assurance Company Ltd. Separately, AIG reports a fourth quarter 2008 loss of $61.7 billion, and a loss of $99.3 billion for all of 2008.

March 11, 2009 | Freddie Mac Press ReleaseFreddie Mac announces that it had a net loss of $23.9 billion in the fourth quarter of 2008, and a net loss of $50.1 billion for 2008 as a whole. Further, Freddie Mac announces that its conservator has submitted a request to the U.S. Treasury Department for an additional $30.8 billion in funding for the company under the Senior Preferred Stock Purchase Agreement with the Treasury.

March 18, 2009 | Federal Reserve Bank of New York Press Release The Federal Reserve Bank of New York releases more information on the Federal Reserve’s plan to purchase Treasury securities. The Desk will concentrate its purchases in nominal maturities ranging from 2 to 10 years. The purchases will be conducted with the Federal Reserve’s primary dealers through a series of competitive auctions and will occur two to three times a week. The Desk plans to hold the first purchase operation late next week.

March 19, 2009 | Treasury Department Press Release The U.S. Department of the Treasury announces an Auto Supplier Support Program that will provide up to $5 billion in financing to the automotive industry. The Supplier Support Program will provide selected suppliers with financial protection on monies (“receivables”) they are owed by domestic auto companies and the opportunity to access immediate liquidity against those obligations. Receivables created with respect to goods shipped after March 19, 2009, will be eligible for the program. Any domestic auto company is eligible to participate in the program. Any U.S.-based supplier that ships to a participating auto manufacturer on qualifying commercial terms may be eligible to participate in the program.

March 23, 2009 | Federal Reserve Press Release The Federal Reserve and the U.S. Treasury issue a joint statement on the appropriate roles of each during the current financial crisis and into the future, and on the steps necessary to ensure financial and monetary stability. The four points of agreement are 1) The Treasury and the Federal Reserve will continue to cooperate in improving the functioning of credit markets and fostering financial stability; 2) The Federal Reserve should avoid credit risk and credit allocation, which are the province of fiscal authorities; 3) The need to preserve monetary stability, and that actions by the Federal Reserve in the pursuit of financial stability must not constrain the exercise of monetary policy as needed to foster maximum sustainable employment and price stability; and 4) The need for a comprehensive resolution regime for systemically critical financial institutions. In addition, the Treasury will seek to remove the Maiden Lane facilities from the Federal Reserve’s balance sheet.

March 26, 2009 | Treasury Department Press Release The U.S. Treasury Department outlines a framework for comprehensive regulatory reform that focuses on containing systemic risks in the financial system. The framework calls for assigning responsibility over all systemically-important firms and critical payment and settlement systems to a single independent regulator. Further, it calls for higher standards on capital and risk management for systemically-important firms; for requiring all hedge funds above a certain size to register with a financial regulator; for a comprehensive framework of oversight, protection and disclosure for the over-the-counter derivatives market; for new requirements for money market funds; and for stronger resolution authority covering all financial institutions that pose systemic risks to the economy.

May 20, 2009 | FDIC Press Release President Obama signs the Helping Families Save Their Homes Act of 2009, which temporarily raises FDIC deposit insurance coverage from $100,000 per depositor to $250,000 per depositor. The new coverage at FDIC-insured institutions will expire on January 1, 2014, when the amount will return to its standard level of $100,000 per depositor for all account categories except IRAs and other certain retirement accounts. This action supersedes the October 3, 2008 changes.

May 21, 2009 | FDIC Press Release The Federal Deposit Insurance Corporation (FDIC) announces the approval of GMAC Financial Services to participate in the Temporary Liquidity Guarantee Program (TLGP). GMAC will be allowed to issue up to $7.4 billion in new FDIC-guaranteed debt.

May 22, 2009 | Federal Reserve Press Release The Federal Reserve Board announces the adoption of a final rule that will allow bank holding companies to include in their Tier 1 capital without restriction senior perpetual preferred stock issued to the U.S. Treasury Department under the Troubled Asset Relief Program (TARP).

May 27, 2009 | FDIC Quarterly Banking Profile The FDIC announces that the number of “problem banks” increased from 252 insured institutions with $159 billion in assets at the end of fourth quarter of 2008, to 305 institutions with $220 billion of assets at the end of the first quarter of 2009. The FDIC also announces that there were 21 bank failures in the first quarter of 2009, which is the largest number of failed institutions in a quarter since the first quarter of 1992.

June 1, 2009 | GM Press Release As part of a new restructuring agreement with the U.S. Treasury and the governments of Canada and Ontario, General Motors Corporation and three domestic subsidiaries announce that they have filed for relief under Chapter 11 of the U.S. Bankruptcy Code.

June 9, 2009 | Treasury Department Press Release The U.S. Treasury Department announces that 10 of the largest U.S. financial institutions participating in the Capital Purchase Program have met the requirements for repayment established by the primary federal banking supervisors. If these firms choose to repay the capital acquired through the program, the Treasury will receive up to $68 billion in repayment proceeds.

June 17, 2009 | U.S. Treasury Department Regulatory Reform Proposal The U.S. Treasury Department releases a proposal for reforming the financial regulatory system. The proposal calls for the creation of a Financial Services Oversight Council and for new authority for the Federal Reserve to supervise all firms that pose a threat to financial stability, including firms that do not own a bank.

June 25, 2009 | AIG Press Release American International Group (AIG) announces that it has entered into an agreement with the Federal Reserve Bank of New York to reduce the debt AIG owes the Federal Reserve Bank of New York by $25 billion. The Federal Reserve Bank of New York will receive preferred interests of $16 billion and $9 billion, respectively, in two new special purpose vehicles holding the equity of AIG subsidiaries American International Assurance Company and American Life Insurance Company.

June 30, 2009 | Treasury Department Press Release The U.S. Treasury proposes a bill to Congress that would create a new Consumer Financial Protection Agency. The bill would transfer all current consumer protection functions of the Federal Reserve System, Comptroller of the Currency, Office of Thrift Supervision, FDIC, FTC, and the National Credit Union Administration to the new agency. In addition, Treasury proposes amendments to the Federal Trade Commission Act with regards to coordination with the proposed Consumer Financial Protection Agency.

As you can see from the information above, the government has its’ fingerprints all over this mess. It can and should be argued that their attempt to manipulate this situation made it worse. Additionally, the use of taxpayer money to bailout through loans and buying ownership stakes in private businesses is unconstitutional. Especially when it is done by turning on the presses to print money we do not have. As a result we have accumulated massive public debt which has the potential to bankrupt the country.

I apologize for the length of this post but to appreciate what has happened you must look at the details. The next installment in this series will focus on the players and their motivation for participating in this drama.

Keyword: morally…………..no such sentiment or value exists in Obama’s administration. America has been betrayed and sold out. If his “programs” pass, our country is doomed.
The time for revolt has come, peacefully, if possible…otherwise, if necessary.